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Market Design
& Analysis
CAISO Contingency Modeling Alternative:
Regional Flexibility Markets
March 2014
Southern California Edison
Page: 1
Market Design
& Analysis Outline
Concerns with the CAISO’s N-1-1 proposal
Alternative approach: Regional Flexibility Markets
Concept
Key considerations
Formulation
Payment structure
Illustrative examples
Page: 2
Market Design
& Analysis Concerns with CAISO’s N-1-1 Proposal
The CAISO proposal may ultimately be the best approach, however
Proposal is complex and results in largely incomprehensible/inexplicable price
formation
Introduces a nodal capacity product and impacts energy LMPs based on the cost of temporal restoration
No other ISO’s have a nodal capacity payment; now the CAISO wants two nodal capacity products (RUC
and SOL-1 relief)
No real-world demonstration of its merit/viability
Market power mitigation not addressed
False precision: Relies on a host of assumptions in the DA market that will not
materialize in real-time; thus DA “solution” may not solve the problems real-time
Too much uncertainty between DA and RT to attempt a single “optimal” solution in DA
Improper treatment of Virtual bids in the solution
Improper treatment of transmission emergency limits available for true N-1-1 restoration
Cost: Spend money in DA with no guarantee that it works in real-time. Uses the DA
market to “address” transmission problems that only require resolution in real-time
Potential under-utilization of Transmission
Unreasonably excludes Flexi-ramp and Regulation as part of the solution
Improper treatment of RA resources
Given concerns, it is appropriate to explore alternatives
Page: 3
Market Design
& Analysis Regional Flexibility Markets: Concept
Flexibility regions can be created to address regional and sub-regional capacity needs including
Ancillary Services, flexi-ramp and N-1 SOL capacity
The CAISO does offline studies to determine regional flexibility needs
SP26
NP26
CAISO
A/S Regions
Flexi-Ramp Constraint Region
Regional Flexibility Markets
For each Flexibility Region:
Flexibility
Region 1
Flexibility
Region 2
Flexibility
Region 3
…
Flexibility
Region N
Flexibility in the region
>=
Flexibility Requirement in the region
For each AS region:
For CAISO System:
AS Capacity >= AS Req.
Flexi-Ramp Award >=
FlexiRamp Req.
NP26
SP26
…
Page: 4
Market Design
& Analysis Regional Flexibility Markets
Proposed solution: Regional Flexibility Markets
Create regions or sub-regions to provide more targeted and more locational Ancillary
Services and Flexibility Capacity Procurement in the Day-ahead and Real-time markets
Without going to the nodal level
No new products (current Flexible Ramping proposal will require modifications)
A/S and Flexible Ramping will receive a Regional price “adder” when regional flexibility constraints
bind
Use off-line studies to determine typical flexibility needs given expected conditions
More reasonable than “flow based” approach for Day-ahead market (e.g. no flows from Virtual Bids)
Energy and capacity are co-optimized as today, but procurement will have more regional
targets
Relatively minor change from status quo (just more regions and price adders)
Robust solution to deal with uncertainty from VERs, load, and other sources
Similar to A/S, procure all needs in the DA market and only do additional procurement in
RT if resources become unavailable or under material system condition changes
A regional approach will ensure
Under an N-1 event, generation capacity will be used when they are needed
It will not restrict Operators in what capacity can be used to restore the flow
Addresses locational A/S needs and locational flexibility needs
Reduces unnecessary EDs on normal days
Address the failure of the CAISO “system-wide” Flexi Ramp Constraint design
Page: 5
Market Design
& Analysis Aside: Flexi Ramp Refinements to Integrate with SOL Issues
The Flexi-Ramp Constraint was implemented in Dec 2011
The current Flexi-Ramp design lacks regional procurement
Neither the flexi-ramp constraint or the flexi-ramp product considers regional procurement
Without refinement, this design shortcoming will continue to cause problems such as
those emphasized by stakeholders and FERC
FERC concluded the failure of the flexi-ramp in its 2012 State of the Markets Report:
“… CAISO implemented the constraint for the ISO as a whole, rather than for specified locations. This
failed to prevent insufficient ramp capability to meet load ramping needs around San Diego in summer
2012.”
CAISO DMM also noted this problem in its 2012 Annual Report:
“… around 56 percent of the capacity procured for the flexible ramping constraint was in the Pacific Gas
and Electric area. Because flexible capacity is deployed during tight system-wide conditions, the majority of
this capacity cannot be used when there is congestion in the southern part of the state, which occurred
more frequently in 2012”
Flexi-ramp should support N-1 SOL restoration
To align with operational reality of how the grid operators respond to N-1 events
Page: 6
Market Design
& Analysis Regional Flexibility Markets: Benefits
Benefits of Regional Flexibility Markets*
1. Provides a framework for regional Flexibility procurement
2. Procurement based on “study conditions”, rather an “optimization” based on false
precision/inaccurate DA forecasts
3. Avoids co-mingling of financial (e.g. virtual bids) and physical flows to address a
reliability requirement
4. Allows Flexi-ramp and demand response to address N-1 SOL issues
5. Regional price formation/better price transparency and mitigation of market power
6. Avoid potential under-utilization of transmission under normal system conditions and
better recognize transmission flexibility during N-1 conditions
7. Potential to reduce both SOL-related EDs and other EDs (MOCs?)
8. Resources selling “Flexibility” in a binding region will receive a locational premium
*: Compared to the current CAISO proposal which is Prevent-Corrective Constraint Approach
Page: 7
Market Design
& Analysis
Payment Structure:
Any existing product in Region α will be paid:
Existing product price + Flexibility Constraint shadow price in Region α
Example:
For Spinning and Non-Spinning, the existing product prices will be determined
through: Reg Award >= Reg Target
Reg + Spin >= Reg Target + Spin Target
Reg + Spin + Non-Spin >= Reg Target + Spin Target + Non-Spin Target
Assume Eq. 2-4 set P_S (price for Spin) and P_NS (price for non-Spin) system-wide.
Assume the shadow price of Eq. 1 is P_α, then the prices for Region α will be
P_S + P_α for Spin in Region α
P_NS + P_α for Non-Spin in Region α
Same price adder P_α applies to FR in Region α.
Formulation in IFM & RTM
wr·Regα + wns·NSα + ws·Sα + wfr·FRα >= 50%·Tα
*: Roughly 50% in 15 minutes. It can be more or less than 50% in reality
Flexibility Constraint for Region α (15-min basis)*:
Where
Tα = Tα0 - DRα – Other Allowable Non-Market Actions – Transf_Cap
Tα0 = Flexibility Requirement for Region α
Transf_Cap = Transfer Capability from neighboring regions to Tα
w’s = Weights
Flexibility Region α
Reg: Regulation
NS: Non-spinning
S: Spinning
DR: Demand Response,
including emergency
programs
FR: Flexi Ramp
Constraint/Product
Notation:
(Eq. 1)
(Eq. 2-4)
Page: 8
Market Design
& Analysis Formulation in RUC
wr·Regα + wns·NSα + ws·Sα + wfr·FRα +
Avail_Cap α + Transf_Cap >= Tα
Reg: Regulation
NS: Non-spinning
S: Spinning
DR: Demand Response, including emergency
programs
FR: Flexi Ramp Constraint/Product
Avail_Cap: available capacity in a region
QS: Quick Start resources
QSRA: Quick Start RA resources
QSNRA: Quick Start non-RA resources ULC: Unloaded Capacity
Tα: Flexibility Target in Region α
Flexibility Region α
Flexibility Constraint for Region α (30-min basis):
Notation: Payment Structure:
• For RA resources, none
• For non-RA resources, paid at the RUC price
(Eq. 1)
Where
Avail_Cap α = QSRAα + QSNRAα + ULCα
Transf_Cap = Transfer Capability from neighboring regions to Tα
Tα = Tα0 - DRα – Other Allowable Non-Market Actions
Tα0 = Flexibility Requirement for Region α
w’s = Weights
Page: 9
Market Design
& Analysis
Flexibility Modeling Example 1: Locational Flexibility can meet both Locational A/S and N-1 SOL needs
Setup
For simplicity, consider only Non-Spin(NS) is
available to provide flexibility
Results
*: The optimization will calculate the shadow price as the marginal
saving of reducing the flexibility constraint regional flexibility requirement
by 1MW, which can be achieved by reducing U2 award by 1MW with
increasing U1 award by 1MW. The saving is $2 - $1 = $1/MW
Region α
U2:
700MW
@$2
U1:
1100MW
@$1
Requirement
NS in SP26 1100 MW
Flexibility in Region α 500 MW
Bids
U1 (outside α) NS: 1100MW @$1
U2 (inside α) NS: 700MW @$2
Dispatch Paid Price Payment
U1 (outside α) 1100MW $1/MW $1100
U2 (inside α) N/A N/A N/A
Without regional flexibility requirement
Dispatch Paid Price Payment
U1 (outside α) 600MW $1/MW $600
U2 (inside α) 500MW $2/MW $1000
With regional flexibility requirement
• The 500MW U2 NS award can serve both locational A/S need
and N-1 SOL need
• U2 is compensated for the service • NS Price for U2 in Region α:
SP26 A/S price + Flexibility Constraint Price:$1/MW + $1/MW*
Page: 10
Market Design
& Analysis
Flexibility Modeling Example 2: locational flexibility can meet both locational flexi-ramp and N-1 SOL needs
Setup
For simplicity, assume only flexi-ramp is available
to provide flexibility needed for N-1 SOL relief
Results
Region α
U2:
700MW
@$2
U1:
1100MW
@$1
Requirement
Flexi-Ramp System-
wide
1000 MW
Flexibility in Region α 500 MW
Flexi-Ramp cost
U1 in NP26 1100MW @$1
U2 (SP26 inside α) 700MW @$2
Dispatch (Flexi-Ramp)
Paid Price Payment
U1 (outside α) 1000MW $1/MW $1000
U2 (inside α) N/A N/A N/A
Without regional flexibility requirement
Dispatch (Flexi-Ramp)
Paid Price Payment
U1 (outside α) 500MW $1/MW $500
U2 (inside α) 500MW $2/MW $1000
With regional flexibility requirement
• The 500MW U2 flexi-ramp award can serve both locational
Flexi-Ramp need and N-1 SOL need
• U2 is compensated for the service
• The 1000MW of ramp in NP26 can’t address a problem in SP26
if there is congestion
• This issues is noted by FERC and CAISO stakeholders
• Load pays the main cost of having U1 Ramp for nothing
Page: 11
Market Design
& Analysis Summary
The Regional Flexibility approach has many potential benefits
when compared to the CAISO approach
The Regional Flexibility approach addresses one of the core
problems with the current Flexi-ramp design – a locational
component
We feel strongly that alternatives, including the Regional
Flexibility Markets, should be evaluated along with the CAISO
proposal before deciding on a final design
Market Design
& Analysis Contact Information
Wei Zhou
(626)-302-3273
Jeff Nelson
(626)-302-4834
